IT solutions and services for law firms...

Transcription

1 IT solutions and services for law firms... Tikit Group plc Annual Report and Financial Statements 2003 Tikit Group plc Annual Report and Financial Statements 2003

2 Contents Tikit s objective is to be the leading IT services and solutions provider to the legal marketplace performance 2 Chairman s Statement 6 Managing Director s Review 10 Financial Review 13 Directors, Board committees and Advisers 14 Corporate Governance Statement 16 Remuneration Report 18 Report of the Directors 20 Statement of Directors Responsibilities 21 Report of the independent auditors 22 Consolidated Profit and Loss Account 23 Consolidated Balance Sheet 24 Company Balance Sheet 25 Consolidated Cash Flow Statement 26 Notes forming part of the Financial Statements

3 2003 Performance Percentage Split of 2003 Revenues 2% Percentage Split of 2002 Revenues 3% 38% 31% 42% 26% 29% 29% Consultancy Services Software Other 5 Year Performance Turnover 6,509 9,310 9,123 8,231 9,558 Pre-tax profit* , ,177 * before goodwill amortisation Highlights Increase Turnover 8.23m 9.56m 16% Profit before tax and goodwill amortisation 0.65m 1.18m 81% Profit before tax 0.31m 0.71m 134% Earnings per share before goodwill amortisation 4.4p 6.9p 57% Basic earnings per share 1.4p 3.0p 114% Final dividend per share 0.75p 1.05p 40% Full year dividend per share 1.1p 1.5p 36% Net Cash 2.13m 1.94m Pipeline and order book at record levels Expansion into continental Europe Optimistic about future prospects 1

4 Chairman s Statement With our strong market position in the UK, an improving presence in both Europe and the USA and a strong balance sheet, the Board is optimistic about both short-term and long-term prospects for the Group. It is a pleasure to be able to announce the full year results for Tikit Group plc. Trading in the second half was particularly strong as we experienced an upturn in confidence from our clients. This has resulted in a good set of results for the year and has also taken us into 2004 with encouraging levels of committed business. Tikit focuses on the needs of the larger law firms. We believe that these organisations are growing, both organically and, through merger activity, faster than the rest of the legal sector. Over the past year Tikit has worked with nine of the top ten UK law firms. Further afield, Tikit has been awarded large contracts to implement document management applications in two of the top three law firms in Spain, including the largest continental law practice in Europe. Business from non-legal clients increased during the year as other organisations in professional services vertical markets have used Tikit s expertise in document management, relationship management, business intelligence and time and expense management solutions. Results Turnover for the year was 9.56 million (2002: 8.23 million), representing a 16.2% increase on the prior year. This growth was achieved mainly from the strong performance of the Group s consultancy and services revenues, which grew by 24.7% to 5.71 million. (2002: 4.58 million). Recurring revenues from support contracts were 2.57 million (2002: 2.01 million), which represented 26.9% of total revenues (2002: 24.4%). 2

5 The forecast upturn in software sales resulted in annual sales of 3.65 million (2002: 3.42 million), an increase of 6.7%. The momentum of software sales is, however, illustrated by the second half revenues of 2.58 million compared with the first half sales of just over 1.07 million. Gross margins were higher, reflecting improvements in software margins, greater sales of Tikit s own software and higher support revenues. Overall, the Group improved profits by 81% achieving an audited profit before tax and goodwill amortisation for the period of 1.18 million (2002: 0.65 million). Earnings per share before goodwill amortisation increased by 57% to 6.9 pence (2002: 4.4 pence). Our balance sheet remains strong with net assets at 31 December 2003 of 3.63 million. Cash balances at the year end were 1.94 million (2002: 2.13 million), despite the purchase and cancellation of 540,000 Tikit shares at a net cost of 279,000, the purchase of shares for the Employee Benefit Trust of 174,000 and the payment of 574,000 in deferred consideration for acquisitions. All deferred cash consideration payments for the acquisitions of Aurra Consulting Limited and Granite & Comfrey Limited have now been made. The business continues to be cash generative with a net inflow from operations of 1.20 million in the period (2002: 0.81 million). The net cash balance at the close of business on 16 March 2004 was 2.48 million. Final dividend In line with the Board s stated strategy of implementing a progressive dividend policy, the directors are recommending a final dividend of 1.05 pence per share (2002: 0.75 pence). This is an increase of 40% over 2002 and will take the full year dividend payment to 1.5 pence per share (2002: 1.1 pence). Subject to approval at the Annual General Meeting, the final dividend will be paid on 6 May 2004 to shareholders on the register at 2 April

6 Chairmans Statement continued Operating review The Group operates and is managed across three main business streams Consultancy, Services and Software sales. Nevertheless, clients see an integrated solution based upon a managed blend of these three areas of expertise. The table below shows our sales analysed by business category ; Year to 31 December Increase m m % Consultancy Services Software Other (13) TOTAL Consultancy Tikit provides both business and technical consultancy, including business process expertise in a law firm environment, technical architecture and project management. Both Aurra and Granite & Comfrey, the acquisitions made by the Group in November 2001 and August 2002 respectively, have increasingly contributed to this area of our activities. These two businesses have been successfully integrated into Tikit and will be marketed more strongly under the Tikit brand during Services Tikit provides ongoing contracted support, training and outsourcing for clients. Support contracts are usually for a period of twelve months, although some contracts are longer, and provide the Group with a visible income stream, due to the recurring nature of the contracts, helping to underpin the quality of earnings and financial success of the Group. Software Sales Tikit provides both third-party application software and Tikit-developed software to law firms. Software developed by Tikit is generally used to enhance the functionality of third-party software applications for the legal marketplace. Tikit retains intellectual property rights over the software that it develops. 4

7 Employees I would like to thank the directors and employees of the Group for their contribution in delivering this excellent set of results. The general economic uncertainty at the start of the year required a high level of belief and hard work, and their commitment to maintaining client satisfaction during these tougher times has resulted in our current high levels of business activity. Prospects The pipeline and order book for the Group s services and software are at record levels and revenues from the consultancy and support services businesses are improving as we implement a number of large projects that were secured in 2003 or won in the first quarter of this year. Whilst the market for third-party software products has not yet returned to levels enjoyed in the past and clients remain cautious, proposal activity remains high and we are winning most of the business that we bid for. In addition, the demand for Tikit-developed software, especially ReAction Server, is strong, not only in the UK but also in the USA and Australia. A number of innovative Tikit software products are being developed and will be introduced during the year to meet client s demands. The progress made during 2003 in continental Europe will be built on during this year with a focus on establishing business with more of the large European law firms. Our belief is that we will achieve strong organic growth of existing business using the relationships established with our existing client base. In addition, Tikit continues to explore faster growth opportunities through acquisition, merger or joint venture activities. With our strong market position in the UK, an improving presence in both Europe and the USA and a strong balance sheet, the Board is optimistic about both short-term and long-term prospects for the Group. Mike McGoun Chairman 16 March

8 Managing Director s Review we have proved capable of running and deploying projects in significant worldwide organisations and this experience opens up opportunities in other vertical markets for our leading software applications. During the past year we have seen a significant increase in the activity levels for consultancy, technical services and the sales of Tikit developed software products to both the UK and overseas legal markets. We have further integrated our recent acquisitions into the main Tikit operation and this has enabled us to offer a seamless and integrated service to our client base, leading to the development and closure of more opportunities. We continue to offer leading solutions to law firms enabling them to increase their efficiency, productivity and levels of advice. The success of this strategy can be seen in the results achieved in Consultancy Revenues from the division for the year to 31 December 2003 were 2.92 million (2002: 2.41 million), an increase of 21%. Revenues from Consultancy activities were 31% of total Group revenues. Tikit consultants have played a significant role in the implementation of the latest technology in document management systems at Clifford Chance, the world s largest law firm. The merger of Rowe and Maw (UK) and Mayer Brown (USA) required strategic and implementation consultancy on combining their respective practice management systems. Aurra consultants have led the integration of systems on both sides of the Atlantic. 6

9 The business intelligence consultancy unit at Tikit, built around the Granite & Comfrey business, has also enjoyed significant success including, in the past twelve months, a major project for one of the top five UK law firms. Services Revenues for the year to 31 December 2003 were 2.79 million (2002: 2.17 million), an increase of 29% on the prior year. Within this total, recurring revenues derived from support and outsourcing services increased by 28% to 2.57 million (2002: 2.01 million). The remaining services revenue was derived from delivering technical and end user training courses. Revenues from services activities represented 29% of Group revenues. During the second half of 2002, Tikit won the exclusive UK rights to sell and support Carpe Diem, the leading time and expense recording software. This software is installed in large numbers across the leading UK law firms and is increasingly applicable in other professions. All support for this product in the UK is now provided through Tikit and this has given rise to increased sales from support contracts in Software Sales Revenues from software sales for the year to 31 December 2003 were 3.65 million (2002: 3.42 million), an increase of 7% on the previous year. As expected, sales of Microsoft infrastructure software returned to more normal levels following the special promotions during Microsoft sales in 2003 were 192,000 compared with 1.01 million in If these sales are excluded, then third-party software sales grew by 31%, in line with the rest of our business. The replacement of these revenues with application software also had a positive effect on margins. Sales of Tikit-developed software were very encouraging and grew to 658,000 (2002: 268,000). 7

10 Managing Director s Review continued Our product portfolio extends across a wide range of key applications for the large law firms, including document and content management, business intelligence, time and expense management and client relationship management. Whilst our core industry competence is in the legal marketplace, the extensive implementation experience with these software packages has resulted in a number of significant projects in non-legal professional organisations. For example, during the year, Tikit was responsible for the global implementation of customer relationship management software at all the offices of 3i plc. Tikit has developed a number of software application packages, which typically provide additional functionality in key application areas, often in conjunction with third-party software products. Over the past 4 years, one of these products; Plus Suite for InterAction has established a base of over 37,000 users worldwide including a number of the largest firms in the USA. In May 2003, we announced the availability of a completely new extension package for InterAction software. Tikit s ReAction Server will enable organisations using InterAction 5 to obtain direct electronic feedback from their contacts within their Intranet or over the Internet. It has numerous applications in the area of data protection and e- mail regulation compliance (of particular relevance to law firms), and also enables the automation of many client care and marketing initiatives. Interest in ReAction Server has been strong and a number of sales have been secured in the UK, the USA and Australia. The future prospects for this software can be gauged by the fact that the worldwide installed base of InterAction (either with InterAction 5 or an upgrade path to that version) is over 400 sites, each with multiple users. Tikit, through the acquisition of Granite & Comfrey, has also developed and implemented new business intelligence software: the Tikit KnowHow System for managing best practice documents within law firms. This Tikit-developed software additionally gained industry recognition by winning the top legal IT award in its area in

11 The future To enable law firms to increase profitability in the future they need to ensure that they have the ability to offer consistent, best practice advice to their client base in a price competitive way whilst allowing their internal systems to be open, where appropriate. If law firms can achieve this, retain high quality lawyers and use their information systems more effectively, then they will continue to prosper. Our aim is to be the leading provider of solutions to law firms and our continued development of stand-alone and add-on modules allows us to achieve this in both the UK and overseas markets. Our ability to understand and service the legal market places us exceptionally well to develop applications that add value to how law firms conduct their business. We also continue to invest in both continental Europe and North America to promote our services and products. Our involvement in the leading trade shows in these geographic locations will enable Tikit to cement and further develop its business outside our core market in the UK. Tikit is in a position to provide consultancy, services and solutions to assist in all these geographic areas and it is our belief that we lead our market in the range of services and products we provide. In addition, we have proved capable of running and deploying projects in significant worldwide organisations and this experience opens up opportunities in other vertical markets for our leading software applications. David Lumsden Managing Director 16 March

12 Financial Review The financial statements have been prepared in accordance with generally accepted accounting principles in the UK and cover the results for the Group for the year to 31 December 2003 and the consolidated balance sheet as at that date. In order to fully integrate Aurra Consulting Limited and Granite & Comfrey Limited, the acquisitions made in late 2001 and 2002 respectively, their activities were transferred to Tikit Limited at the start of the year. The acquisitions have expanded our range of services and made an increasing contribution to Group profits. Trading Both turnover and profits were at the highest level achieved in our 10 year history. Total turnover in the year was 9.56m (2002: 8.23m) an increase of 16.2%. The Group writes off goodwill on acquisitions over 5 years and this needs to be taken into account when reviewing profitability, as other companies may amortise goodwill over a substantially longer period or, in some cases, not at all. Group profit on ordinary activities, before taxation and amortisation of goodwill, was 1.18m (2002: 0.65m) an increase of 81.5%. Taxation The increase in activity during the second half of 2003 indicates a return to more normal trading conditions in the legal sector following two years of weakness. In addition, our first major contract wins in Spain provide us with the opportunity to expand the customer base into mainland Europe. Based on the Group profit before tax and amortisation of goodwill, the current year tax charge is an effective rate of 29.7% (2002: 21.6%). In 2002 the charge benefited from acquired trading losses. Claims for research and development costs reduced the charge in both years but low capital expenditure requirements had the opposite effect. The standard rate of corporation tax in the UK is 30%. 10

13 Earnings and dividends The Group measures its earnings per share performance after excluding goodwill amortisation from the calculation. Adjusted basic earnings per share, based on the actual shares in issue, was 6.9p (2002: 4.4p). The average number of shares in issue in the year was 11.93m (2002: 11.65m). When determining dividend policy, current earnings, future prospects and future cash flows are taken into account. This year the Board is recommending a final dividend of 1.05p (2002: 0.75p) which when combined with the interim dividend of 0.45p gives a total dividend for the year of 1.5p (2002: 1.1p) an increase of 36.4%. The dividend is covered 4.6 times by post-tax earnings, excluding goodwill amortisation. Cash flow Cash inflow from operating activities of 1.20m (2002: 0.81m) reflects a strong conversion of profit to cash. There was a small movement in net working capital indicating the tight control of this area. The Group continues to benefit from low capital expenditure requirements when compared to the high depreciation charge mainly arising from the move to its present offices in After normal cash outflows for corporation tax, capital expenditure and dividends, the net cash generation for the year was 0.85m. However, the final earnout payments arising from the acquisition of Aurra Consulting Limited and Granite & Comfrey Limited, together with amounts spent on the purchase of our own shares, accounted for further expenditure of 1.04m, leaving the year end bank balances at 1.94m (2002: 2.13m). Financial instruments The Group's financial instruments comprise cash, liquid resources and trade debtors and creditors. The main risks arising from these financial instruments are interest rate risk, liquidity risk and foreign currency exchange rate risk. The policies for managing each of these risks are as follows: 11

14 Financial Review continued Interest rate risk The Group is cash positive and places its balances on short-term deposits with highly regarded financial institutions. Changes in interest rates will affect the return on cash balances and also the interest payable on the 75,000 loan notes in issue. The Group does not hold or issue derivative financial instruments. Liquidity risk The Group s policy is to ensure sufficient funds are always available for its operating activities. As the Group is cash positive, the Board believes there is no requirement in the foreseeable future to arrange any borrowing facilities. Conclusion The increase in activity during the second half of 2003 indicates a return to more normal trading conditions in the legal sector following two years of weakness. In addition, our first major contract wins in Spain provide us with the opportunity to expand the customer base into mainland Europe. With a strong balance sheet and positive cash flow, the Group is in a favourable position to exploit the opportunities which arise from an improvement in market conditions. Foreign currency exchange risk The Group s foreign exchange risk is not considered to be significant and any resulting gains or losses are recognised in the profit and loss account. Anthony Pearson Finance Director 16 March 2004 Shareholder information The Group s website at contains a wide range of information about our activities and visitors can download copies of the report and accounts as well as newsletters and matters of interest. 12

15 Directors, Board committees and Advisers Directors M McGoun BSc MSc (Chairman) D Lumsden (Managing director) A Pearson FCA (Finance director) N Briant LLB (Independent Non-executive) R Price BSc (Econ) FCA FCCA CTA (Independent Senior Non-executive) Secretary and registered office A Pearson FCA Telephone: (020) Africa House Facsimile: (020) Kingsway Website: London WC2B 6AH Company number Auditors BDO Stoy Hayward 8 Baker Street London W1U 3LL Solicitors Lawrence Jones Faegre Benson Hobson Audley Sea Containers House 7 Pilgrim Street 20 Upper Ground London London EC4V 6LB SE1 9LH Brokers and Nominated Adviser Principal bankers Financial PR Advisers Registrars Charles Stanley 25 Luke Street London EC2A 4AR National Westminster Bank PLC 31 Cheapside London EC2V 6HT Beattie Financial 4th Floor 37/39 Lime Street London EC3M 7AY Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0LA Board committees The principal standing committees appointed by the Board are as follows: Audit committee R Price (Chairman) N Briant Remuneration committee N Briant (Chairman) R Price Nominations committee M McGoun (Chairman) N Briant R Price 13

16 Corporate Governance Statement Statement by the Directors on compliance with the Combined Code The company is listed on the Alternative Investment Market (AIM) and is therefore not required to comply with the provisions of the Combined Code. Nevertheless, the Board is committed to ensuring that proper standards of corporate governance operate throughout the Group and has followed the principles of the Combined Code and the recommendations of the Higgs review so far as is practicable and appropriate for the nature and size of the Group. A statement of the directors' responsibilities in respect of the financial statements is set out on page 20. Below is a brief description of the role of the Board and its Committees, followed by a statement regarding the Group s system of internal controls. The Board The Board comprises two non-executive directors and three executive directors and is responsible to shareholders for the proper management of the Group. The non-executive directors are Richard Price (the senior non-executive director) and Nicholas Briant and the Board considers both to be independent. The Board meets regularly, reviewing trading performance, setting and monitoring strategy, and examining major capital expenditure and acquisition opportunities. All directors have access to the advice and services of the company secretary. Any director appointed during the year is required, under the company s Articles of Association, to retire and seek re-election by shareholders at the next Annual General Meeting. It is company policy that each director retires and seeks re-election every three years. Audit Committee The Audit Committee comprises the two non-executive directors of the company and is chaired by Richard Price. Its terms of reference require it to meet not less than twice each year and it provides a forum for reporting by the Group s auditors. By invitation, the meetings are also attended by the Chairman, Managing Director and the Finance Director. The Audit Committee is responsible for reviewing a wide range of financial matters including ensuring that the financial performance of the Group is adequately measured and controlled, correctly represented, reported to and understood by the Board. The Audit Committee advises the Board on the appointment of external auditors and on their remuneration, both for audit and non-audit work, and discusses the nature and scope of their audit. The Committee meets the Auditors at least once a year without any executive directors present. Remuneration Committee The Remuneration Committee comprises the two nonexecutive directors and is chaired by Nicholas Briant. Details of the executive remuneration policy is set out in the separate Remuneration Report. Individual directors remuneration packages are included in the Remuneration Report on page 17 Nominations Committee The Nominations Committee comprises the chairman and the two non-executive directors. It is responsible for making recommendations to the Board on all new appointments to the Board and considering and making recommendations as to the Board s composition and balance. 14

17 Going Concern Having reviewed the future plans and projections for the business, the directors believe that the company and its subsidiary undertakings have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Internal Controls The directors are responsible for the Group s system of internal control and for reviewing its effectiveness which, by its nature, can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has reviewed the effectiveness of the Group s internal control systems for the period 1 January 2003 to the date of approval of the financial statements. The Board will continue to review the effectiveness of its control assessment system on a regular basis. The Board has established procedures which are designed to provide effective internal control for the Group and these include: It is Board policy that executive directors receive suitable training for their position, which is considered as part of the appraisal process. Risk Management The directors and operating company management have a clear responsibility for identifying risks facing each of the businesses and for putting in place procedures to mitigate and monitor risks. Risks are formally assessed during the annual budget process, which is monitored by the Board, and the ongoing Group strategy process. Financial Reporting The Group has a comprehensive system of financial reporting. There is a detailed budgeting system in place which includes the plan of each operating company being approved by the executive directors and the Board approves the overall Group budget. On a monthly basis, actual results are reported against budget and any significant adverse variances examined and remedial action taken where necessary. Control Environment and Procedures The directors have in place an organisational structure with clearly defined levels of responsibility and delegation of authority. Control procedures include annual budget approval and monitoring of actual performance. Formal staff appraisal procedures and training programmes are in place. Capital expenditure requests are reviewed by the Board and appropriate due diligence work will be carried out when a business is to be acquired. 15

18 Remuneration Report The Remuneration Committee is constituted in accordance with the Combined Code. The Committee is composed entirely of non-executive directors, who are believed by the company to be independent, as set out on page 13. The Chairman during the year was Mr Nicholas Briant. The terms of reference for the Committee are to determine the Group s policy on executive remuneration and to consider and approve the remuneration packages for directors subject to ratification by the Board. During the financial year the Committee met a total of 3 times. Policy on executive director remuneration The Group s current and ongoing remuneration policy aims to ensure that executive directors are fairly rewarded for their individual contributions to the Group s overall performance and is designed to attract, retain and motivate executives of the right calibre. The Committee is responsible for recommendations on all elements of directors remuneration including, in particular, basic salary, annual bonus, share options and any other incentive awards. In implementing the remuneration policy, the Committee has regard to factors specific to the company, such as salary and other benefit arrangements within the Group and the achievement of the Group s strategic objectives. The Committee determines the Group s policy on executive directors remuneration with reference to comparable companies of similar market capitalisation, location and business sector. Basic salary The basic salaries of executive directors are reviewed annually having regard to individual performance and position within the company and are intended to be competitive but fair using information provided from both internal and external sources. The performance related annual bonus forms a significant part of the level of remuneration considered appropriate by the Remuneration Committee. Details of directors emoluments are set out on page 17. Performance related annual bonus The percentage of basic salary on which annual cash bonuses are based is set by the Committee. The 2003 bonuses paid to executive directors on achievement of the target Group profits before tax are shown in the remuneration table on page 17. Target based bonuses payable to the executive directors for the 2004 financial year will be on a similar basis and capped at a maximum of 30% of basic pay, including any pension contributions. In determining whether a bonus payment is made or not, the Committee will consider any factors that may alter the targets against which performance is measured and adjust the level of bonus accordingly. In addition to the formal bonus scheme, the Committee has the discretion to recommend the payment of ad hoc awards to reflect exceptional performance. Incentive plans The Committee s policy is to provide a mixture of short-term and long-term incentives to align the interests of the executive directors with the Group s strategic plans and the interests of its shareholders by way of grants under the 2001 Enterprise Management Incentive Share Option Scheme. On 30 May 2003, 200,000 share options were issued at 10p each to certain executive directors under the Group s long-term incentive plan. These options are subject to the Group achieving a minimum adjusted basic earnings per share of 7.0p in the year ended 31 December 2005 and are exercisable from 30 May Pensions Contributions are made to the executive directors personal pension schemes up to a maximum of 10% of basic salary. Details of directors pension contributions are set out on page 17. Other benefits The Committee aims to provide an objective and independent assessment of all benefits granted to directors. Service contracts The executive directors have rolling 12 month service contracts with notice periods of 12 months. Directors are entitled to a non-pensionable bonus subject to achieving the targets set by the Remuneration Committee for the bonus scheme in place for the year in question (as set out at the beginning of this report). No director receives additional remuneration or benefits in relation to being a director or sitting on the board of any Group company. 16

19 Policy on remuneration of non-executive directors The Board determines the Group s policy on non-executive directors fees and will continue to set fees with reference to the individual director s role, the company s market capitalisation, location and business sector. Non-executive directors are not permitted to participate in employee share option schemes, neither are they entitled to participate in the company s pension arrangements. The non-executive directors have letters of appointment dated 16 May 2001 which specify that their appointment lasts for a renewable 3 year term initially to 15 May 2004 but terminable without compensation before this date. Remuneration of directors The remuneration of directors who served during 2003 is shown in the table on page 17. Remuneration includes management salaries, taxable benefits and bonuses. Remuneration shown is in respect of each director s period in office during 2003 as a board member of Tikit Group plc and includes remuneration from the company and its subsidiary undertakings. The emoluments of individual directors are shown in the table below: Advisers to the Remuneration Committee Any advisers to the Remuneration Committee are appointed and instructed by the Committee members. No such advisers were appointed in Salary/ Benefits Total Pensions fees Bonus in kind M McGoun D Lumsden A Pearson N Briant R Price Details of directors options to acquire ordinary shares in the company are provided in note 4 to the accounts. 17

20 Report of the Directors for the year ended 31 December 2003 The directors present their annual report and the audited financial statements for the year ended 31 December Results and dividends The results of the Group for the year are set out on page 22 and show a profit after taxation but before goodwill amortisation for the year of 828,000 (2002: 508,000). An interim dividend of 0.45p (2002: 0.35p) per share was paid on 12 October Subject to shareholders approval, the directors recommend the payment of a final ordinary dividend of 1.05p (2002: 0.75p) per share making a total ordinary dividend for the year of 1.5p (2002: 1.1p). The assets, liabilities and trade of Aurra Consulting Limited and Granite & Comfrey Limited were transferred to Tikit Limited as at the close of business on 31 December Principal activity, review of business and future developments The Group is principally engaged in the provision and maintenance of information technology products and solutions. A review of the business and future developments is contained in the Chairman s statement and the Managing Director s review. Directors and directors interests The directors who held office during the year and their beneficial interests in the share capital of the company at the end of the financial year were as follows: Ordinary shares Preference shares of 10p each of 1 each M McGoun 1,371,890 1,471,890 1,000 1,000 D Lumsden 296, ,500 A Pearson 30,428 40,428 N Briant 6,500 6,500 R Price 6,500 6,500 The William James Flanagan 2002 Discretionary Settlement, of which M McGoun is a co-trustee, has a holding of 57,571 (2002: 250,000) ordinary shares under which all employees, present or future, of the company and its subsidiaries are, potentially, discretionary beneficiaries. These potentially beneficial interests are not included in the amounts above. Details of directors interests in options on the ordinary share capital of the company are disclosed in note 4 to the financial statements. Substantial holdings As far as the directors are aware, as at 16 March 2004, the only holdings of 3% or more of the company s issued share capital were as follows: 18

21 Percentage Percentage Number of of issued Number of of issued ordinary share preference share shares capital shares capital W Flanagan 1,924, M McGoun 1,371, , P O Connor 922, G Simpson 883, M & K Bailey 772, BNY Nominees Ltd 500, Rensburg Client Nominees Ltd 436, Chase Nominees Ltd 434, Trivest VCT Plc 434, A Glass 368, The Nominee accounts are identified in the share register but the number and identity of the underlying holdings have not been notified to the company. Creditors payment policy It is the policy of the Group to agree terms and conditions with suppliers and to pay in accordance with them, provided the goods or services concerned have been supplied in accordance with those terms and conditions. At 31 December 2003 the Group had 100 days (2002: 49 days) of outstanding liabilities to creditors. The company makes no material trade purchases. Research and development The Group continues to invest in carefully targeted, low cost, research and development to identify and write a number of software enhancement modules which improve the functionality of certain third party applications in a law firm environment. Expenditure on research and development is charged to the profit and loss account in the year it is incurred but produces intellectual property rights which are expected to benefit the Group s trading results in the medium and longer term. Post-balance sheet events There have been no events since the balance sheet date which materially affect the position of the Group. Employees The Group has a policy of keeping all employees fully informed about its plans and progress through regular meetings, formal presentations and electronic communication. Participation by employees in the progress and profitability of the Group is encouraged, where appropriate, through annual bonus schemes, in addition to the Group share option schemes. Employee development is encouraged with formal staff appraisals and training programs. The Group operates recruitment and selection procedures which consider all applicants for employment on the basis of qualification for specific vacancies without regard to race, colour, religion, sex, age, disability or national origin. Political and charitable donations The Group made no political contributions in the year (2002: Nil). Donations to UK charities totalled 3,209 (2002: 1,076). Auditors On 31 December 2003, BDO Stoy Hayward, the company s auditors, transferred its business to BDO Stoy Hayward LLP, a limited liability partnership incorporated under the Limited Liability Partnerships Act Accordingly, BDO Stoy Hayward resigned as auditors on that date and the directors appointed BDO Stoy Hayward LLP as its successor. A resolution to reappoint BDO Stoy Hayward LLP as auditors will be proposed at the next Annual General Meeting. Annual General Meeting The Annual General Meeting will be held at the company s registered office on 29 April By order of the Board A Pearson Company Secretary 16 March

22 Statement of Directors Responsibilities Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and Group and of the profit or loss of the Group for that period. In preparing those financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Financial statements are published on the company s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the company s website is the responsibility of the directors. The directors responsibility also extends to the ongoing integrity of the financial statements contained therein. 20

23 Report of the independent auditors To the shareholders of Tikit Group plc We have audited the financial statements of Tikit Group plc for the year ended 31 December 2003 on pages 22 to 39 which have been prepared under the accounting policies set out on pages 26 and 27. Respective responsibilities of directors and auditors The directors responsibilities for preparing the annual report and the financial statements in accordance with applicable law and United Kingdom Accounting Standards are set out in the Statement of directors responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and United Kingdom Auditing Standards. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act We also report to you if, in our opinion, the Report of the directors is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors remuneration and transactions with the Group is not disclosed. We read other information contained in the annual report and consider whether it is consistent with the audited financial statements. This other information comprises only the Chairman s statement, the Managing Director s review, the Financial review, the Corporate governance statement, the Remuneration report and the Report of the directors. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of the Companies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Basis of audit opinion We conducted our audit in accordance with United Kingdom Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the company and the Group at 31 December 2003 and of the profit of the Group for the year then ended and have been properly prepared in accordance with the Companies Act BDO STOY HAYWARD LLP Chartered Accountants and Registered Auditors London 16 March

24 Consolidated Profit and Loss Account for the year ended 31 December 2003 Note Turnover Cost of sales 2 Total 2003 Total ,558 (6,802) 8,231 (6,210) Gross profit Administrative expenses Goodwill amortisation Other administrative expenses 2,756 2,021 (464) (1,638) (343) (1,434) Total administrative expenses (2,102) (1,777) (10) (8) 1,177 (464) 648 (343) Group operating profit Interest receivable Interest payable and similar charges 3 6 Profit on ordinary activities before taxation and amortisation of goodwill Amortisation of goodwill Profit on ordinary activities before taxation Taxation on profit from ordinary activities (349) 305 (140) Profit on ordinary activities after taxation Dividends (179) 165 (129) p 2.9p 1.4p 1.3p 6.9p 6.6p 4.4p 4.0p Retained profit Earnings per share Basic Diluted Adjusted basic Adjusted diluted 9 Other than the profit for the period shown above, there were no other recognised gains or losses during the period. All amounts relate to continuing activities. The notes on pages 26 to 39 form part of these financial statements. 22

25 Consolidated Balance Sheet at 31 December Note Fixed assets Intangible assets 11 1,363 1,512 Tangible assets Investments ,755 1,823 Current assets Stocks Debtors 15 4,089 2,391 Cash at bank and in hand 1,938 2,131 6,030 4,525 Creditors: amounts falling due within one year 16 4,152 2,376 Net current assets 1,878 2,149 Total assets less current liabilities 3,633 3,972 Provisions for liabilities and charges 17 (417) 3,633 3,555 Capital and reserves Called up share capital 18,19 1,203 1,176 Shares to be issued Share premium account 19 1,283 1,269 Merger reserve Capital redemption reserve Profit and loss account Shareholders funds 19,21 3,633 3,555 Included within shareholders funds is an amount of 1,000 (2002: 1,000) in respect of non-equity interests. These financial statements were approved by the Board on 16 March A Pearson Director The notes on pages 26 to 39 form part of these financial statements. 23

26 Company Balance Sheet at 31 December 2003 Note Fixed assets Investments ,296 1,955 Current assets Debtors Cash at bank 15 1, ,071 1, ,345 Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Provisions for liabilities and charges ,098 2,786 3,053 (417) 2,786 2,636 Capital and reserves Called up share capital Shares to be issued Share premium account Capital redemption reserve Profit and loss account 18, , , , , Shareholders funds 19,21 2,786 2,636 Included within shareholders funds is an amount of 1,000 (2002: 1,000) in respect of non-equity interests. These financial statements were approved by the Board on 16 March A Pearson Director The notes on pages 26 to 39 form part of these financial statements

27 Consolidated Cash Flow Statement for the year ended 31 December Note Net cash inflow from operating activities 24 1, Returns on investments and servicing of finance Interest received Interest paid (10) (8) Net cash inflow from returns on investments and servicing of finance Corporation tax paid (190) (342) Capital expenditure and financial investment Purchase of tangible fixed assets (84) (72) Sale of tangible fixed assets 9 Purchase of own shares by employee benefit trust 13 (174) (46) Net cash outflow from capital expenditure and financial investment (258) (109) Acquisitions and disposals Purchase of subsidiary undertakings (80) Cash acquired with subsidiaries 53 Loan note repaid (25) Deferred consideration 17 (574) Net cash outflow from acquisitions and disposals (599) (27) Equity dividends paid (144) (128) Cash inflow before financing Financing Exercise of share options 2 Redemption of preference share capital (50) Call on preference shares 37 Expenses recovered in connection with flotation costs 14 Repurchase of own shares for cancellation 19 (279) Cash outflow from financing (265) (11) (Decrease)/increase in cash in the year 26 (193) 250 The notes on pages 26 to 39 form part of these financial statements. 25

28 Notes forming part of the Financial Statements for the year ended 31 December Accounting policies undertaking is the difference between the fair value of Basis of preparation the consideration paid and the fair value of the assets The financial statements have been prepared in and liabilities acquired. In calculating goodwill, the total accordance with applicable accounting standards and consideration, both actual and deferred, is taken into under the historical cost convention. account. Where the deferred consideration is contingent The principal accounting policies are: and dependent upon future trading performance, an estimate of the value of likely consideration payable is Basis of consolidation made. The contingent deferred consideration is The consolidated financial statements incorporate the reassessed annually and a corresponding adjustment is results of Tikit Group plc and its three subsidiary made to the goodwill arising on acquisition. undertakings, Tikit Limited, Aurra Consulting Limited and Granite & Comfrey Limited (together referred to as the Group ) for the year ended 31 December Goodwill is capitalised and amortised through the profit and loss account over the directors estimate of its useful economic life of 5 years. Impairment tests on the Acquisition accounting carrying value of goodwill are undertaken: Where the acquisition method is used, the results of the subsidiary are included from the date of acquisition. The acquisition; purchase consideration is allocated to assets and liabilities on the basis of fair value at the date of at the end of the first full financial year following in other periods if events or changes in acquisition. circumstances indicate that the carrying value may In the company financial statements of Tikit Group plc, not be recoverable. advantage has been taken of the merger relief rules. Turnover and income recognition Shares issued as consideration for acquisitions are Turnover represents the amounts receivable, net of value accounted for at nominal value. added tax, on the provision of the Group s software, Merger accounting maintenance, consultancy and other services such as Where merger accounting is used, the investment is training. When a sale of the Group s software is made to recorded in the company s balance sheet at the nominal a customer the price normally includes the provision of value of shares issued together with the fair value of any third-party maintenance and support provided by the additional consideration paid. Group. The support element is deferred and recognised over the period that the support is provided. The licence In the Group financial statements, merged subsidiary undertakings are treated as if they had always been a member of the Group. The results of such a subsidiary are included for the whole period in the year it joins the element of the sale is recognised as income when the following conditions have been satisfied: 1) Group. The corresponding figures for the previous year include its results for that period, the assets and 2) 3) 26 The ongoing obligations of the Group to the customer, aside from the support are minimal. they had always been in issue. Any difference between the nominal value of the shares acquired by the There is a contractual relationship between the customer and the Group. liabilities at the previous balance sheet date and the shares issued by the company as consideration as if The software has been provided to the customer in a form that enables the customer to utilise it. 4) The amount payable by the customer is company and those issued by the company to acquire determinable and there is a reasonable expectation them is taken to reserves. of payment. Goodwill Depreciation Goodwill arising on an acquisition of a subsidiary Depreciation is provided to write off the cost, less

29 estimated residual values, of all tangible fixed assets evenly over their expected useful lives. It is calculated at the following rates: Leasehold improvements over length of lease Computer equipment 33% per annum Office equipment 25% per annum Investments Investments held as fixed assets are stated at cost less any provision for impairment in value. Profits or losses arising from disposals of fixed asset investments are treated as part of the result from ordinary activities. Impairment of fixed assets and goodwill The need for any fixed asset impairment write-down is assessed by comparison of the carrying value of the asset against the higher of its net realisable value and value in use. Stocks Stocks are valued at the lower of cost and net realisable value. Cost of raw materials, consumables and goods purchased for resale means actual purchase price, including transport and handling, and is determined using the FIFO method. Net realisable value means estimated net selling price less further costs to completion. Leased assets Payments made in respect of operating leases are charged to the profit and loss account on a straight line basis over the lease term. The Group has no finance leases or hire purchase contracts. Research and development Expenditure on product development is charged to the profit and loss account in the year in which it is incurred. Pension costs Defined contributions to the Group personal pension scheme are charged to the profit and loss account in the period in which they become payable. The Group does not operate any defined benefit pension plans. Foreign currency Foreign currency transactions of individual companies are translated at rates ruling when they occurred. Foreign currency monetary assets and liabilities are translated at rates ruling at the balance sheet dates. Any differences are taken to the profit and loss account. Financial instruments In relation to the disclosures made in note 20: short-term debtors and creditors are not treated as financial assets and liabilities; the Group does not hold or issue derivative financial instruments for trading purposes; and the Group s foreign currency exposure is not significant and any resulting gains or losses are recognised in the profit and loss account. Employee benefit trust The balance sheets include the assets and liabilities of an employee benefit trust. The trustees have waived their right to dividends in respect of investments in the Group s shares. Share Options When shares and share options are granted to employees a charge is made to the profit and loss account and a reserve created in capital and reserves to record the fair value of the awards in accordance with UITF Abstract 17 Employee Share Schemes. This charge is spread over the period of performance relating to the grant. Deferred taxation Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the balance sheet date except that the recognition of deferred tax assets is limited to the extent that the company anticipates to make sufficient profit in the future to absorb the reversal of the underlying timing differences. Deferred tax balances are not discounted. 27

30 Notes forming part of the Financial Statements (continued) for the year ended 31 December Turnover Turnover by destination: United Kingdom European Union Rest of the World , ,558 7, ,231 Turnover, net profit and net assets are attributable to the principal activity of the Group and derive from operations located wholly in the UK. 3 Operating profit This is arrived at after charging/(crediting): Unfunded research and development Depreciation Amortisation of goodwill Impairment of investment Operating leases rent of buildings Profit on disposal of fixed assets Auditors remuneration audit services (Company 8,000 (2002: 6,000)) non-audit services (1) 27 24

31 4 Directors The remuneration of directors is set out below: Directors emoluments Pension costs Emoluments of the highest paid director: Emoluments Amounts paid to the Company s defined contribution pension scheme 3 8 Two directors (2002: two) were accruing benefits under defined contribution schemes. Directors emoluments are detailed, by director, in the Remuneration report. The share options of the directors under The Tikit Group EMI Share Option Scheme are set out below: 31 December 31 December Exercise Earliest date Number Number price of exercise D Lumsden 84,658 84,658 15p 5 February 2004 D Lumsden 100,000 10p 30 May 2006 A Pearson 42,329 42,329 15p 5 February 2004 A Pearson 25,000 10p 30 May 2006 The 15p options were granted on 5 February 2001 by Tikit Limited under the Enterprise Management Incentive legislation and were exchanged for the same number of options in Tikit Group plc on 30 May The options expire on 5 February The 10p options were granted on 30 May 2003 and are linked to performance targets. The options expire on 30 May No options lapsed during the year. The market price of the shares at 31 December 2003 was 113p and the range during the financial year was 81.5p to 172.5p. 5 Employees The average number of employees of the Group during the year, including executive directors, was as follows: Number Number Services Sales 10 9 Administration Staff costs for all employees, including executive directors, consist of: Wages and salaries 3,449 2,926 Social security costs Pension costs ,954 3,356 29

32 Notes forming part of the Financial Statements (continued) for the year ended 31 December Interest payable and similar charges Interest payable Bank charges Taxation on profit from ordinary activities (a) Analysis of charge in year 2003 Current tax UK corporation tax on profits for the year Adjustments in respect of previous periods Total current tax (note 7(b)) Deferred tax Origination and reversal of timing differences Total deferred tax (note 15) Tax on profit on ordinary activities (16) 365 (16) 183 (25) 158 (18) (16) 349 (18) 140 (b) Factors affecting tax charge for the year The tax assessed for the year differs from that obtained by applying the standard rate of corporation tax in the UK (30%). The differences are explained below: Profit on ordinary activities before tax Profit on ordinary activities multiplied by standard rate of UK corporation tax of 30% (2002: 30%) Effects of: Expenses not deductible for tax purposes (primarily goodwill amortisation) Depreciation for period in excess of capital allowances Utilisation of tax losses (34) Marginal relief (6) (16) Adjustments in respect of previous periods (16) (25) Current tax charge for year (note 7(a))

33 8 Dividends Interim paid of 0.45p (2002: 0.35p) per share Final proposed of 1.05p (2002: 0.75p) per share Earnings per share The calculation of earnings per ordinary share is based on profit after tax and the weighted average number of ordinary shares in issue during the year. An adjusted earnings per share has also been calculated in addition to the basic earnings per share and is based on earnings adjusted to eliminate the effects of goodwill amortisation. It has been calculated to allow shareholders to gain a clearer understanding of the trading performance of the Group Basic Diluted Basic Diluted pence pence pence pence 2003 per per 2002 per per share share share share Basic earnings: Profit after tax Adjustments: Goodwill amortisation Adjusted earnings The weighted average number of ordinary shares used in the calculation of earnings per share is as follows: Weighted average ordinary shares in issue during the year 11,935 11,653 Potentially dilutive share options under the Group s share option schemes Deferred consideration to be satisfied in shares Weighted average ordinary shares for diluted earnings per share 12,537 12, Profit for the financial year The company has taken advantage of the exemption allowed under section 230 of the Companies Act 1985 and has not presented its own profit and loss account in these financial statements. The Group profit for the year includes a profit after tax and before dividends of 584,000 (2002: 135,000) which is dealt with in the financial statements of the parent company. 31

34 Notes forming part of the Financial Statements (continued) for the year ended 31 December Intangible fixed assets Group Goodwill Cost At 1 January 2003 Adjustment to deferred consideration At 31 December 2003 Amortisation At 1 January 2003 Charge for the period At 31 December 2003 Net book value At 31 December 2003 At 31 December , , ,363 1,512 The adjustment to deferred consideration relates to the recalculation of goodwill based on the actual profits earned by Aurra Consulting Limited for the period ended 30 June This adjustment is split between cash paid (note 17) and shares issued (note 19). The company has no intangible fixed assets. 12 Tangible fixed assets Group Cost At 1 January 2003 Additions At 31 December 2003 Depreciation At 1 January 2003 Provision for year At 31 December 2003 Net book value At 31 December 2003 At 31 December 2002 The company has no tangible fixed assets. 32 Leasehold improvements Computer equipment Office equipment Total

35 13 Fixed asset investments Investment Other in own Group investments shares Total At 1 January Additions Provision for impairment in value (14) (14) At 31 December Other investments of 14,500 (2002: 29,000) relate to 18,000 ordinary 10p shares (out of 1,005,600 issued) and 27,000 1 preference shares (out of 350,010 issued) in ARI Limited. M McGoun is a director of ARI Limited. Investment Investment in Group in own Company undertakings shares Total At 1 January , ,955 Adjustment to deferred consideration Additions At 31 December , ,296 Subsidiary undertakings The following were subsidiary undertakings at the end of the year and have all been included in the consolidated financial statements: Proportion of voting rights Country of and ordinary Name incorporation share capital held Nature of business Tikit Limited UK 100% IT services and software Aurra Consulting Limited UK 100% Non-trading Granite & Comfrey Limited UK 100% Non-trading 33

36 Notes forming part of the Financial Statements (continued) for the year ended 31 December Fixed asset investments (Continued) Investment in own shares The employee benefit trust (EBT) was established on 26 September 2002 in order to provide for the future obligations of the company for shares awarded under its share option schemes. Under the scheme the trustees purchase the company s ordinary shares using funds supplied under a loan agreement with the company. Shares held in Trust Number Value Cost At 1 January , Additions 246, At 31 December , Market value at 31 December At 31 December 2003, 215,491 had been loaned by the company to the EBT to finance the purchase of ordinary shares. The balance of cash held by the Trust, 4,354, is included in the balance sheet as cash at bank and in hand. 14 Stocks Group Company 2003 Company 2002 Group Group Trade debtors 3,372 2,043 Amounts due from Group undertakings Prepayments and accrued income Deferred taxation ,089 2,391 All amounts fall due for payment within one year, with the exception of deferred taxation. Company , ,067 Company , ,291 Finished goods and goods held for resale Group Debtors

37 15 Debtors (Continued) Provision for deferred taxation Group Accelerated capital allowances (28) Amounts in brackets denote a deferred tax asset. Deferred taxation is provided on a full provision basis. No deferred tax arises in the company. (12) (16) (28) Balance at 1 January 2003 Credited to profit and loss account (note 7(a)) Balance at 31 December (12) Creditors: amounts falling due within one year Loan notes Trade creditors Amounts due to Group undertakings Other creditors Tax and social security Proposed dividend Corporation tax Accruals and deferred income Group , ,006 4,152 Group ,376 Company Company The loan notes are unsecured and accrue interest at a rate of 1/2% below the Barclays Bank PLC base lending rate. The notes are redeemable by the holders on request and by the company from the 26 November Provisions for liabilities and charges Provision for deferred contingent consideration: Group and Company At 1 January 2003 Additional consideration Paid in the year At 31 December (574) The additional consideration relates to the higher cash element paid in respect of the acquisition of Aurra Consulting Limited on 26 November

38 Notes forming part of the Financial Statements (continued) for the year ended 31 December Share capital Authorised Ordinary shares of 10p each Preference shares of 1 each Allotted, called up and fully paid Ordinary shares of 10p each Preference shares of 1 each 2003 Number Number ,490,000 51,000 1, ,490,000 51,000 1, ,017,586 1,000 1, ,203 11,751,570 1,000 1, ,176 Issue of shares On 3 March 2003, the company issued 1,566 ordinary shares of 10p for cash on the exercise of options under the Tikit Group plc Approved Share Option Plan at a price of 15p each. On 12 March 2003, the company issued 439,612 ordinary shares of 10p each as part of the consideration on the acquisition of Aurra Consulting Limited. A further 348,793 shares were issued on 4 September 2003 as the final consideration on the acquisition of Aurra Consulting Limited. On 6 August 2003 the company issued 16,045 ordinary shares of 10p each as part of the consideration on the acquisition of Granite & Comfrey Limited. Purchase and cancellation of shares Under the terms of a Resolution passed at the last Annual General Meeting, the company purchased and cancelled 540,000 ordinary shares of 10p each at a cost of 279,000 (including expenses). The purchase was made on 15 May 2003, from CUIM Nominee Ltd and represented 4.4% of the issued share capital. Preference shares The holders of the preference shares have the right to receive a fixed cumulative dividend of 5% per annum calculated on the amount paid up. The company will redeem any unredeemed preference shares on 31 December The shares are redeemable at par and carry no voting rights. They rank in priority to the ordinary shares for repayment in the event of the company being wound up. Share options At 31 December 2003, the following share options were outstanding in respect of the ordinary shares: Date of grant Inland Revenue Approved Company Share Option Plan: 1 February March August June 2003 Enterprise Management Incentive Scheme: 5 February November May Number of shares 212,409 30,589 40, , , , ,000 Date from which options are first exercisable 1 February 31 March 27 August 30 June February November May 2006 Lapse date 1 February 31 March 27 August 30 June Price per share p 114.5p 110.0p 81.0p 5 February November May p 108.0p 10.0p

39 19 Reconciliation of movement in share capital and reserves Ordinary Preference Shares Share Capital re- Profit share share to be premium Merger demption and loss capital capital issued account reserve reserve account Total Group At 1 January , , ,555 Shares issued on acquisition (note 18) 81 (71) 10 Purchase of ordinary shares (note 18) (54) 54 (279) (279) Flotation costs recovered Retained profit for the year Adjustment to contingent consideration At 31 December , , ,633 Company At 1 January , , ,636 Shares issued on acquisition (note 18) 81 (71) 10 Purchase of ordinary shares (note 18) (54) 54 (279) (279) Flotation costs recovered Retained profit for the year At 31 December , , ,786 The adjustment to deferred contingent consideration relates to the higher than expected share element paid in respect of the acquisition of Aurra Consulting Limited. The shares to be issued reserve relates to shares expected to be issued in order to satisfy deferred consideration on the acquisition of Granite & Comfrey Limited. The decrease in the year of 71,000 relates to the issue of ordinary shares to the previous shareholders of Aurra Consulting Limited ( 68,000) and Granite & Comfrey Limited ( 3,000). The difference on the shares actually issued ( 10,000) relates to a higher than anticipated number of shares issued on the Aurra Consulting Limited earnout, less a reduction in the shares issued to Granite & Comfrey Limited following an increase in the Tikit Group plc share price. 37

40 Notes forming part of the Financial Statements (continued) for the year ended 31 December Financial instruments The only significant financial asset the Group has is cash at bank. Cash is held either on current or on short-term deposits at floating rates of interest determined by the relevant bank s prevailing base rate. Part of the cash at bank is held in a Euro account. The Group s foreign currency exposure is not significant and any resulting gains or losses are recognised in the profit and loss account. The Group s financial liabilities consist of loan notes and preference shares. The 75,000 loan notes are charged at a rate of interest 1/2% below the Barclays Bank PLC base lending rate and the preference shares pay a fixed coupon of 5% per annum on amounts paid up. The market value of the Group s financial assets and liabilities does not differ materially from the carrying value. The Group does not hold any derivative financial instruments. The Group s policy as regards liquidity is to ensure sufficient cash resources are maintained to meet short-term liabilities. 21 Reconciliation of movements in shareholders funds Profit for the year Dividends Shares repurchased (note 18) Flotation costs recovered Shares issued (net of expenses) Deferred consideration on acquisition (note 19) Adjustment to deferred consideration (note 19) Net addition/(deduction) to shareholders funds Opening shareholders funds Closing shareholders funds 22 Group (179) (279) ,555 3,633 Group (129) (50) (140) 45 3,510 3,555 Company (179) (279) ,636 2,786 Company (129) (50) (21) 2,657 2,636 Related party transactions All transactions were conducted on an arm s length basis on normal trading terms. Administrative expenses include an amount of Nil (2002: 900) in respect of training services provided by Movere, a business controlled by D Lumsden s family. No amounts remained outstanding at 31 December 2003 (2002: Nil). M McGoun is a director of ARI Limited to which sales of Nil (2002: 2,700) were made during the year by Tikit Limited. No amounts remained outstanding at 31 December 2003 (2002: Nil). Mr D Sturdy is a director of Granite & Comfrey Limited and owns premises in Yorkshire which are leased to a Group company. During the year 4,917 (2002: 1,667) was charged in respect of the lease. At 31 December ,567 (2002: Nil) was outstanding. 38

41 23 Commitments under operating leases Annual commitments under operating leases for land and buildings amount to 111,366 (2002: 107,766). These commitments expire between one and five years. 24 Reconciliation of operating profit to net cash inflow from operating activities Operating profit Amortisation of goodwill Impairment of investment 14 Depreciation charge Profit on disposal of fixed assets (1) (Increase)/decrease in stocks 47 (Increase) in debtors (1,682) (387) Increase in creditors 1, Net cash inflow from operating activities 1, Reconciliation of net cash outflow to movement in net funds (Decrease)/increase in cash in the year (168) 250 Net funds at 1 January ,031 1,781 Net funds at 31 December ,863 2, Analysis of changes in net funds At At start Cash end of year flow of year Cash in hand and at bank 2,131 (193) 1,938 Debt due within one year (100) 25 (75) Net funds 2,031 (168) 1,863 39

42 Shareholder Notes 40

43

44 IT solutions and services for law firms... Tikit Group plc Africa House Kingsway London, WC2B 6AH England Tel: +44 (0) Fax: +44 (0) Web: